‘Tax cuts for citizens who give invoices for all transactions can curb shadow economy’

AMMAN — Providing tax cuts and incentives for citizens who submit receipts for all their purchases and financial transactions will greatly help curb shadow economy, which is causing “great” losses to the Treasury, economists said on Sunday.

Several economists stated that better law enforcement, the implementation of an efficient and transparent system under which citizens who submit receipt get tax incentives and combating corruption are key in fighting shadow economy, which accounted for 17.38 per cent of the GDP between 1991 and 2015, according to the International Monetary Fund (IMF).

“Having a proper and transparent system that regulates the process of submitting receipts and offers incentives and tax cuts to citizens who submit receipts for all transactions would play a key role. This is a solution that experts have been calling for since decades,” economist Zayyan Zawaneh told The Jordan Times on Sunday.

Practitioners in several professions fall under shadow economy, including doctors, lawyers, engineers, street vendors and several other professions, the economist said.

“There are big losses to the Treasury as there are no taxes paid at all on these transactions,” he noted, adding that “many workers in the shadow economy are also not covered by social security coverage or any pension scheme and this is serious”.

Zawaneh said that if there were sound economic policies and a focus on job creation in the Kingdom, the shadow economy would fade way.

“The problem is that there are no precise figures on shadow economy, which means that any economic decision is not based on slid grounds and accurate information,” he stressed.

Economist Mazen Ersheid echoed similar remarks, saying that providing incentives for citizens that submit receipts for all their transactions would play a major role in combating shadow economy, which he said is a form of tax evasion.

“I believe the actual percentage of shadow economy in Jordan is higher than the IMF estimates, as the study showed that it reaches about 35 per cent in advanced countries,” he told The Jordan Times on Sunday.

In a paper titled “Shadow Economies around the World”, the IMF showed that the Kingdom’s shadow economy’s part in the GDP ranged between 13.44 and 21.12 per cent during the 20 years targeted in the study, the report said, as quoted by the Jordan News Agency, Petra.

The paper, which covered 158 countries, also showed that the ratio of the informal economy to the GDP took a downtrend starting from 2004.

However, the real volume of the shadow economy might be higher than that shown in the study in some countries like Jordan, Lebanon and Turkey as the impact of hosting refugees was not measured.

“Shadow economy exists and grows when people fear the tax systems are unfair and there is corruption… Thus, fighting corruption and ensuring the efficiency and transparency of tax collection would help as well curb shadow economy,” Ersheid said.

Economist Wajdi Makhamreh said the Treasury loses “large amounts” in lost taxes and revenues because of the practices that fall under the shadow economy.

“A solution to curb shadow economy would be giving tax cuts for taxpayers who provide invoices and receipts… This will encourage citizens to file all transactions and prevent merchants for example from avoiding filing their transactions,” Makhamreh concluded.